According to the National Association of Realtors, new-home sales are projected to drop to 464,000 in 2009, down 8.8% from their 2008 mark of 509,000. While real estate experts remain unsure when the real estate downturn will again move positive, equity and non-equity destination clubs both welcome and fear the decrease in luxury real estate prices.Most destination club business models revolve around the clubs’ real estate holdings. Destination clubs typically fall into three rather broad categories: Bond-like MembershipsThe most common destination club model, a member receives a fixed amount when (if) they resign their destination club membership. Members have a fixed amount that they receive at the conclusion of their membership period, generally between 75 percent and 100 percent of the membership deposit they to join the club.Future Value MembershipsThis increasingly popular membership option provides members with a refund based on the ideally higher initial fees a club is charging when a member exits the club. Under this format, members may receive even more than they what they paid in. Although models vary, members typically receive between 70 to 80 percent of the future value of their membership, upon exiting the club.For example, the Solstice Collection currently offers their Signature membership plan for $615,000. Solstice allows their members the option of choosing a traditional bond-like membership plan, as mentioned above, or a future value membership option. A Solstice member electing to take the traditional bond membership option would receive 100 percent of their membership deposit back when resigning from the club. A member who elects the future value option is counting on the club being able to charge more for their membership in the future. If Solstice raises their Signature membership plan to $800,000, a future value member who joined at $615,000 would get 80 percent of the $800,000 membership value when they resigned; a $640,000 refund on their $615,000 initial membership deposit.Equity Membership Most similar to true second home ownership, members are also direct owners of the club’s portfolio of properties. Members enjoy similar access to the club’s properties as the other formats, and when they redeem their membership, they receive an amount that is calculated based on the club’s current real estate holdings. Some equity clubs have a fixed date at which point the club will liquidate its holdings, and return pro rata shares of the proceeds to all member/owners. If the club has made wise real estate investments in burgeoning markets, the member may well receive an amount significantly greater than the amount they invested. If the club’s real estate has not appreciated at all, the amount refunded will probably be similar to the amount paid in. “We’re finding luxury homes up to 30% off in markets that would have sold at market rate just a few years ago,” said Adam Capes, President of Equity Estates, in a recent conversation with The Veras Group. “Our owners/members love that we are acquiring our portfolio of homes in a down real estate market.”Equity Estates, one of the leading firms in this sector of the destination club industry, structures their membership as ownership of an investment fund. Members enjoy luxurious vacation residences and first class service, but are also owners of the fund, which has an anticipated liquidation date in 13 years.While Equity Estates and other destination clubs’ members directly benefit from the club buying homes in a slumping real estate environment, the other destination club models also see benefits from their structure in slower markets.Diversified Real Estate PortfolioWhile the value of one home in one location can vary widely, depending on the local market, destination clubs have a disparate, global portfolio of homes. The diverse locations spread risk across a broader platform, which can be a great benefit to clubs with larger portfolios. While domestic real estate has seen a recent downturn, many international properties have seen record gains. Some international beach properties have posted gains over 230 percent in the past five years. Los Cabos, a destination club mainstay, has enjoyed 17 percent year over year gains during this period, and other areas like the Turks & Caicos have dedicated billions of dollars to tourism development, subsequently strengthening the area’s real estate asset value. While some US and Canadian properties have seen value depreciation, some have seen just the opposite, shielding clubs from drastic regional price variances. Membership Deposit Toward Real Estate Nearly every destination club states how much of its incoming membership deposits are allocated toward real estate acquisition. While many home prices have slid, destination club membership prices have risen. This presents a huge opportunity for forward-thinking clubs.Purchase More Real Estate: If members are contributing more capital as part of their initial purchase decision, the club can purchase additional real estate in advance of their acquisition schedule. This second option not only increases availability, but also allows the club to grow their real estate holdings. By taking a long-term view, destination clubs can maximize profits when they do sell, during more favorable market conditions. This also adds more homes and destinations, allowing for stronger future sales.Purchase Better Real Estate: Every club has a target home value they purchase for their members. If a club typically purchases $4 million residences, they may be able to temporarily increase their buying power, and purchase homes valued at $4.5-$5 million currently. This allows the club to buy homes that are closer to the beach or ski lift, more spacious, and more stunning than their other real estate.Decrease Their Debt Service: While both of the above options strengthen the member’s travel options, a down real estate market can also strengthen the club’s financial security. Members’ deposits are backed by the club’s real estate holdings. Many destination clubs do not purchase their homes outright, but rather incur debt between 40% and 70% of the property value to complete the transaction. If clubs are receiving more membership deposit monies per home, they can increase their down payment and drive down the loan-to-value ratio. This decreased debt improves the club’s balance sheet and thus members’ deposit security.The oldest investment mantra is “buy low, sell high.” The destination club model is predicated on this idea. While lower real estate values temporarily decrease the value of the club’s overall portfolio, it ultimately raises the club’s long term sustainability and produces highly satisfied members.———The Veras Group is the only unbiased destination club news, consulting and brokerage firm. As our client, we accompany your purchase from start to finish: customized reviews of your travel needs, unrestricted access to our expert advisors, insiders’ advice from industry veterans, insightful due diligence support, thorough club comparisons and points of difference, and the best available terms & pricing on your membership, all at no cost to you.
There are many investment options available to those who are considering real estate as a thoughtful method of maintaining the longer term income and profits.And why on earth shouldn’t you consider these options? This can be a lucrative proposition, that millionaires all over the world will agree, to create a massive fortune quickly. However, real estate investing could be a very risky venture therefore your necessity of having some more stable ways of bringing in money in order to establish a truly diverse portfolio plus a better security structure for your financial future is imperative.Even within the massive world of real estate investment you will be able to find different ways of investing and each one of them will bear different risks level.So let’s explore some of them.Commercial Real Estate InvestmentCommercial real estate investment is an effective place to begin due to the fact that it would be relatively secure compared to some other styles of investing your hard earn money. The drawback with the commercial real estate is the idea that in most situations it requires a large some of money to start with. This option many real estate investors do not even contemplate until they have built a large portfolio and also have tons of money to risk.Let’s say you acquired a large office building and leasing it out to prospective businesses. Your income stream should be relatively stable because most organizations and/or businesses that lease from you will need to stay on a long-term basis (generally minimum commercial lease is 3 to 5 years). Majority of the businesses whether it is an accounting or a doctor, prefer to stay at the same location for as long as they can, due to establishing the steady stream of clientele. So in a perfect world it would supply you with a stable stream of income.House Flipping InvestmentLately this type of real estate investment became one of the most popular sort of investing and many folks have discovered that this is also a great way to make or spend money very rapidly. It happens to be a high-risk venture to say the least but the rewards are equally high every time a flip goes well. You should decide if you are willing to take a gamble and be able to hold on to the property if you can’t flip it in the expected/desirable time, just because house flips are part skill and part luck.Residential Rental Properties InvestmentBecoming a landlord, while perhaps not as glitzy as owning business properties throughout the entire city or flipping fabulous properties for immediate profits, is a superb way to work yourself inside rather comfortable retirement. It is a long-term method of real estate investment still the payoffs may well be rewarding when all is alleged and done. For your cautious real estate property investor this is a worthy brand of real estate investment to pursue.Pre-construction InvestmentPre-Construction profits are even riskier than house flipping in many instances, particularly as it has become so popular in recent years. The trick with this sort of real estate investment is acquiring the right property in the perfect market. Provided you can fall into an American city that may be close to have got a serious housing shortage or possesses the beginning stages of a housing shortage (for example few affluent communities with older houses or coastal communities have had recently) one stands to create quite a fortune for himself. The thing is until this field is extremely speculative and really competitive.Lease or Rent to Own InvestmentLease to own purchases can usually bring better profits. A large number of investors/owners consider this particular real estate investment to be more desirable vs simple renting for a number of reasons.Firstly, those that dream to own their homes are more likely to take much better care of their “future homes” than their counterparts, who are just renting. Also, if for whatever reason they decide to move elsewhere and do not complete the acquisition, you will be inheriting the extra money, that had been paid toward the down payment and most likely have no extensive repairs.Last but not least, by collecting the extra money that supposed to be applied toward the purchase or down payment, you will often be helping a family that may have hit a trouble spot, to accomplish the American dream of home ownership. And that alone should make you feel good.Real estate investing is a superb opportunity to build great fortunes. You need to decide where you desire to begin your journey into this lucrative field. Remember that once you have begun your properties investment career it is a good idea to employ different types of investments for diversification and controlling the risk, because this is a volatile market at best.And, of course, if you need an advice or help with your real estate investment, we will be honored and privileged to help.